In a matter of weeks, the COVID-19 pandemic has triggered a massive mobility shift that has forced many auto insurers to reevaluate policy pricing and exposure, leading to premium refunds, discounts, and payment deferrals.
While these actions by Allstate, American Family, GEICO, Liberty Mutual, Farmers, and others are to be applauded, this is expensive for carriers and based on inaccurate data, creating added financial pressure in an already uncertain time.
The insurance industry has an opportunity here to take a step forward and move to a system that allows for sudden shifts by adjusting prices for the consumer while also reducing expenses for the carrier.
UBI generates a premium based on exactly how a policyholder uses his or her vehicle. True UBI means that the premium can go up or down based on usage with shorter intervals between price adjustments, such as monthly or even weekly. This is not a new concept; some companies are already implementing these kinds of policies.
But now is the time to look at full-scale adoption to help combat the unexpected, create transparency for the customer, and reduce carrier expenses.
No one could have predicted such a massive shift in commuting patterns a few months ago. With so many people experiencing the work-from-home lifestyle, it is reasonable to expect that this will become more common post-COVID-19. With large swaths of the workplace practicing variable commuting, UBI provides the perfect solution by adjusting prices as policyholders drive and will also offer flexibility for auto insurance carriers in times of unusual mobility patterns.
In the best of times, policyholders do not understand how their premiums are generated. UBI is structured to provide feedback to the policyholder about their driving habits and the impact of those behaviors on their premiums. Transparency and understanding are built into UBI policies from the beginning, minimizing policyholders’ anxiety about premiums.
A modern tool for today’s drivers
Implementing a new policy and rating system is not easy, and carriers have other problems to face right now. But given the lifestyle changes that are sure to come from current events, this is the perfect time to start thinking about implementing UBI on a much larger scale.
Telematics solutions are ready to provide the necessary data for the carrier and the feedback for the policyholder to enable variable pricing and give some added transparency and control to drivers.
When you are faced with a crisis, everything you can count on to function properly is a bonus, and UBI fits the bill.
Greg Donaldson is a senior analyst with Aite Group’s P&C Insurance practice. He has over 25 years’ experience in the P&C and life insurance industry, working with property claims, injury claims, underwriting, sales, training, and analytics. Look for this contributor on LinkedIn, or send email to [email protected]egroup.com.
These opinions are the author’s own. This piece first published in the Aite Group blog and is reproduced here with permission.